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STORE Capital marketing $663M portfolio of triple-net leases

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A pioneering REIT in the financing of sale-leaseback transactions for middle-market companies is launching its second securitization of single-tenant commercial leases.

Scottsdale, Ariz.-based STORE Capital Corp. (NYSE: STOR) is sponsoring a $663 million master-trust securitization of the net-lease revenue it receives from over one thousand single-tenant commercial real estate property investments, according to a presale report from S&P Global Ratings.

Instead of marketing securities backed by commercial property mortgages, STORE Capital chooses the more esoteric option of securitizing the income from its triple-net leases – a similar strategy to REITS such Spirit Realty Capital and SCP Financial.

The collateral for the multi-trust issuance consists of net lease income from 273 leases on 1,111 operational commercial properties in which it has invested for small businesses in the dining, retail and service/distribution sectors.

The transaction includes four senior note classes, with preliminary AAA ratings assigned by S&P Global Ratings to the Class A-1 and A-2 tranches totaling $326 million, and A+ to Class A-3 and A-4 notes that will have a combined balance of $182 million. (The individual balance of each tranche will be determined at closing).

STORE (NYSE: STOR) will also market $155 million in subordinate Class B bonds totaling $155 million.

STORE (an acronym for Single Tenant Operational Real Estate) invests in what S&P described as “operationally essential” properties – such as restaurants theaters, auto action centers, gyms or warehouses – that require real estate locations to function. Such properties tied to real estate-based operations are more likely to renew leases, according to S&P.

The sale-leaseback financing agreements free up capital for tenants, and protect STORE Capital investors by deploying triple-net leases that exempt the REIT from the maintenance, tax and insurance responsibilities on the properties.

The leases backing the Series 2019-1 notes are primarily restaurant properties (making up 25.15% of the properties), but STORE Capital’s middle-market tenants include restaurants, furniture and home improvement stores, educational and daycare facilities, movie theaters, and service and distribution facilities, according to S&P.

STORE was formed in 2011, went public in 2014 and received a $377 million investment from Warren Buffet’s Berkshire Hathaway in 2017.

STORE Capital traces its roots to executives with the Franchise Finance Corp. of America (FFCA). Under real estate financier Mort Fleischer, FFCA introduced the sale-leaseback model in 1981 to help fledging restaurant franchises like P.F. Chang’s to open, expand or remodel locations.

FFCA later expanded the sale-leaseback concept to middle-market companies in other sectors such as auto parts stores under the direction of Christopher Volk.

After FFCA was sold to GE Capital in 2001, Fleischer and Volk later formed Spirit Finance Corp. (now Spirit Realty) to focus on single-tenant operational real estate, as a precursor to STORE Capital that the duo unveiled four years after Spirit was sold to a private investor consortium.

The new Series 2019-1 issuance for STORE Capital follows last year’s initial Series 2018-1 notes.

Credit Suisse is the sole structuring agent on the deal, and is jointly bookrunning the transaction with Goldman Sachs.

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